Big Banks See EMV Liability Opportunity

Large banks believe they will enjoy a liability advantage over merchants if they can issue their credit and debit cards with an EMV conforming computer chip prior to the October 2015 liability shift.

“The larger banks believe they will have an opportunity for a liability advantage if they have EMV enabled cards ready by October 1,” explained Julie Conroy, research director for Aite Group’s Retail Banking Group. “There is no way that that the retailers are going to be ready by then, so this is a chance for the retailers to share some of the fraud pain,” Conroy said.

After Oct. 1, 2015, if a consumer uses a magnetic stripe in an EMV-capable POS terminal and the transaction is fraudulent, liability will rest with the issuer of the original magnetic stripe card. However, if a user uses a magnetic stripe card for a fraudulent transaction on a terminal that cannot process EMV, the liability for the fraud will rest with the merchant.

The Aite Group published a report on June 9 detailing the quickening pace of EMV issuing and forecasting that 70% of credit and debit cards in the U.S. would be EMV cards by the end of the 2015.

Conroy acknowledged that credit unions had been among the earliest adopters of EMV, but said the number of cards credit unions have to issue are much smaller than the numbers of cards big banks must issue.

She also credited the rise in counterfeit card fraud for the surge of interest in EMV issuing, noting that the rate of fraud doubling from five basis points to 10 basis points had resulted in “huge” losses for the larger issues.

“Every day that goes by without EMV, they are feeling more exposed,” she said, even though she noted that counterfeit fraud is not the largest fraud category.

“Counterfeit fraud is at about 37% of aggregate card fraud in the U.S.,” Conroy said, “but card not present fraud is currently at about 45%, and that one is likely to grow after EMV is rolled out.”

Currently the internet is the largest venue for CNP fraud, she explained, but others, such as mobile fraud and CNP fraud at call centers, are starting to pick up, too. Conroy predicted that better fraud prevention tools would soon be needed for those channels.